tv Nightly Business Report PBS April 9, 2012 7:00pm-7:30pm PDT
>> i'm erika miller on wall street. stocks had a strong start to the year. but i'll tell you why the next few months may be rockier. >> susie: facebook snaps up instagram, the online photo sharing network. the billion dollar deal is facebook's biggest acquisition yet. >> tom: and you've got patents. microsoft sees big value in a.o.l.'s patent portfolio. it's "nightly business report" for monday, april 9. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
captioning sponsored by wpbt >> susie: good evening, everyone. a sharp sell off on wall street today, as investors got their first chance to react to that lousy jobs report that came out on friday. investors are worried tom about the strength of the economy. >> tom: after months of strong gains, the march hiring slowdown comes as the dow industrials and s&p 500 stock indices have been on a four-session losing streak, susie. all of the major stock averages were down by 1% or more today and the dow sliding below 13,000 in almost a month. the blue chip average tumbled 130 points. the nasdaq lost 33 and s&p was off about 16. >> susie: but as erika miller reports, the economic outlook isn't the only worry on investor minds.
>> reporter: the stock market has been off and running the past four months. but now investors are rethinking many of the factors behind the rally. >> i think there are some questions in terms of the pace of the economic recovery-- just how strong is the labor market and underlying production. i think friday's jobs report obviously spooked some people. >> reporter: on wall street, the hope has been that hiring would get stronger as the year progresses. but now that's being questioned. so investors are waiting to see if upcoming data suggests the recovery is stalling out. the next big report is retail sales next week. >> we don't want to see a slowdown in retail sales. they've been very strong in the first quarter of 2012. that would be more concerning, if it shows people actually starting to cut back on consumption. >> investors are also worried about the outlook for corporate profits. as earnings reporting season officially kicks off tomorrow, analysts see the end of the two year winning streak for earnings growth.
>> reporter: it's clear the results will be unimpressive. factset is forecasting earnings for the s&p 500 will drop a tenth of a percent. take out expected big gains from apple, and the outlook is even worse: a 1.6% decline. ugh comparisons to the first quarter of last year are part of the problem. in addition, high energy costs are eating into margins. and the economies of europe and many emerging markets are slowing. >> the market is fearful that record profit margins cannot be sustained, given some evidence of slowing growth in china and asia. given the inventory buildup and given the paucity of pricing power. >> reporter: according to factset, one out of every five firms in the s&p 500 are expected to post higher sales, but declining profits. that would be the worst reading in two-and-a-half years. but there is one thing to remember. although first quarter results are likely to be lackluster, investors won't put much stock in them. far more important, is what companies have to say about the
remainder of the year. erika miller, "nightly business report," new york. >> susie: and earnings season kicks off tomorrow with alcoa. it's the first dow component to report quarterly results. c.e.o. klaus kleinfeld joins us right after he releases alcoa's numbers and we'll talk about the outlook for the aluminum giant and the global economy. >> tom: still ahead, you've got patents! microsoft strikes a deal for a trove of a.o.l. patents. why the race for patents is heating up. >> susie: the u.s. should let the bush-era tax cuts expire. that's what simon johnson the noted m.i.t. economist believes will bring down the nation's huge deficit. he makes his case in the book "white house burning" co- authored with james kwak. when i talked with johnson he explained why those bush tax cuts are hurting, not helping u.s. finances. test test test we need to make a fiscal adjustment in this country. we have lost track of the
fact that you need revenue to underpin any kind of sensible government activity. if you look at the political, the only moment coming any time soon, it make such an adjustment is the expiration of the bush era tax cuts at the end of this year. >> susie: what do you think of president obama's proposal that the bush tax cuts should not be extend ford people making more than $250,000 a year, would you be in favor of that? >> it's not enough. yes, i think that you shouldn't let-- you shouldn't extend the tax kurkts you shed let them expire but let all of them expire. if you feel you need to support the economy you should replace them or propose to replace them way temporary payroll tax cut tied, for example to employment relative to the population. as the competent recovers that tax cut would go away. >> susie: what dow say to the argument that the economy is too weak and if you raise taxes, at this time, will choke off the recovery. >> well, i agree tau don't want to choke off the recovery. and the fiscal proposal we have on our book, many of them are to be phased in over two decades. but i don't think you should
just postpone decisions and postpone the hard work on this. i think not extending the bush era tax cuts sends a huge signal to investors around the world. the u.s. is really serious about getting its fiscal accounts in order. >> you also proposed raising other tacks, more spending cuts leaving medicare and social security as is, leave them alone. you know that these are politically complicated fixes. so what happens if this stalemate continues in washington. >> the real dang certificate that we'll doing in and the fact the bond markets are very favorable towards the united states, the treasury can borrow extremly low-interest rate, 2% for a lot, sends politicians the wrong signal. that's how many of the european economies have gotten into difficulty. they didn't want to make ever physical choices. and they didn't want to present voters with any hard truths. well, eventually you have too much debt. eventually you will get into some form of fis wall-- fiscal problem and interest rates will go up. if interest rate goes up with our current levels of debt 4%, 6%, 8% this will be
very difficult and then will you be forced into some form of really tough precipitous austerity that would push you back into recession. >> so are you saying that we might have to go through those tough austerity measures that we saw going on in europe? i mean how real is that? >> we're not greece, and we will not ever be greece. we haven't tied ourselve into a crazy monetary system like the euro zone. and we have time and we have space. but ultimately, if we pos post-- postpone this, refuse to deal with t done the road the international markets will turn gend us. you cannot assume that the u.s. government will be able to borrow an infinite amount for the indefinite fought at 2%. that would be completely contrary to our experience historically, to the experience of other countries. >> susie: let's turn and talk a little bit about europe. do you think that it's getting closer to fixing its financial problem. >> the europeans are a long way from solving that problem. they need to deal with the issue of fiscal unification within the eurozone. and that is not even on the
agenda yet. they need more crises to push them in that direction. which is not good, and it is not good for us. that is where we are. >> susie: but is the fear of contagion gone? >> no it's not gone. it's to the gone within europe and it's to the gone between europe and the united states. some policymakers are trying to ignore it i think the federal reserve in particular has its eyes closed on the issue. that the contagion through the banking system is very real and very serious danger this year, next year, and for the foreseeable future. >> tom: facebook may be just weeks away from its initial public stock offering, but tonight it's making its biggest ever acquisition. facebook is spending $1 billion cash for instagram-- the online photo sharing network. instagram's downloadable app lets users take a picture from their smartphones, use filters
to change their photos, then up- load them directly to social sites like facebook and twitter. the deal comes just days after instagram completed a $500 million round of venture capital financing. motley fool's andrew tonner says while facebook's paying a lot for instagram, the app, fits. >> facebook, obviously going to deploy this across its platform, as people use mobile more and more it will just draw people into the user base. i think facebook's a growth story. i think it's going to be a huge i.p.o., probably an overpriced i.p.o. we definitely see some of that frothiness people keep talking about with all of the new web companies that are coming to market and we just see this again here. >> tom: while we're talking about online companies, a.o.l. used to rule the web. now its selling hundreds of patents to microsoft. this billion dollar deal sent shares of a.o.l. to their highest price in more than a year, up 43% to over $26 a share. a.o.l. gets cash, but why is microsoft paying so much for
those patents? darren gersh reports. it's a cold war thing. >> reporter: microsoft's growing patent arsenal is like an arms race. if you have enough missiles, any attack will result in mutually assured destruction. patents operate the same way. at some point, you really don't need any more weapons, because each side has so many weapons they can't really use them in a meaningful way. >> reporter: if a company like microsoft has more patents, it has more leverage, more ways to argue it's not using someone else's technology in its products. but there is some offense to the patent hunt, too. it's a way to gain ground on opponents in key markets like smart phones. force the other guy to license your technology and pay a high price for doing so. >> if you slice into the other guys profits enough, you either make his products less attractive or you make your >> reporter: microsoft snapped up patents from aol in mapping, social networking, content generation, and streaming and that ammunition cost microsoft less than a month's cash flow. >> if some of these companies in
your space are already doing this and you're not, you could be left with the person with the least chips at the table. >> reporter: the scramble for patents is running up the price. when it bought motorola, google paid around $750,000 per patent. now microsoft has paid just over a million. and some say it's a good deal. >> not all patents are created equal, i think that's the key takeaway. and you know when we did the work and others have done the work they've realized that more than half the portfolio is actually very valuable. >> reporter: the deal is a clear win for aol which is now sitting on $15 of cash per share. >> they've got a ton of businesses like aol instant messenger, mapquest, huffington post, and i think if you look at those media businesses on a sum of the parts analysis, you could actually get to a value of anywhere from $20 to $30 a share just on media alone. >> reporter: the hunt for hidden patent value continues. analysts are digging through the patent portfolios of microsoft, google and yahoo and trying to
put a value on ideas that may have been filed away years ago. darren gersh, "nightly business report," washington. >> susie: president barack obama and brazilian president dilma rousseff met at the white house today for talks about more economic cooperation between the two countries. they announced plans to step up cooperation in areas like trade, investment and energy. brazil is the ninth largest oil producer in the world and it's one of the u.s.'s biggest trading partners. but in recent years it has been exporting more to china. joining us now to talk more about brazil-- andres garcia global market strategist at j.p. morgan funds. strategist at jpmorgan, nice to you have on our program. >> let's just begin by saying how important is brazil to the united states? >> i think that's a great question. brazil is now the 6th largest economy in the world. so the fact that it's growing fast, used to not be as big as something to keep in mind but the fact is the 6th biggest economy t is something that our government officials should kind of point and see okay
there is another country here in the americas that is significantly larger than other emerging markets and also growing at a pretty significant pace. >> well, it had been growing. and it was, you know, surging in fact, this economy. but it slowed down recentlyment how is it doing? >> you know what, it is going through a soft patch, mostly attributed to what is happening outside of brazil places like china are slowing down a bit, obviously in a recession, but overall we expect the economy to reaccelerate in the second half and grow somewhere around 5% next year, we expect brazil to reaccelerate its growth. >> as we mentioned the number of experts between the united states and brazil have dropped dramatically over the past couple of years. what do you think is going to come out of this white house meeting today? do you expect new trade agreements between the u.s. and brazil ultimately? >> i think, you know, when it comes to these meetings from heads of state, the important thing to remember is not necessarily the
content that is on the table but the fact that they are et mooing. that is the important fact. the fact that they are trying to make ties a little bit closer, to work on that relationship that hopefully over time develop into better trade agreements and more trade between the two countries. >> and what would be likely areas, the most popular areas to have this new cooperation? >> well, i think if you think about, for instance, the ability of maybe the united states to have more oil imports from brazil rather than the middle east and also the ability of us to actually provide some goods an services to a growing middle class that is emerging in brazil there is somewhat of the areas, there could be some common interest. >> what is all this mean for investors? we hear so often about the risks and the rewards of investing in emerging countries like brazil. isn't brazil a good place for investors to put their money? >> i think is, especially for long-term investors. in the short term emerge markets are pretty volatile, so for that reason you definitely should talk to your financial advisor and see what makes sense within
your portfolio. having said that brazil has a very strong structural growth when it comes to, if you think about a young population, that is growing, that's onement and two is, if you look at their income growth, theres is growing, emerging middle class. i was in sao paolo two months back and the restaurants are full, the malls packed with people buying things. so in that sense there could be significant upside not only for the u.s. competent but as an investor to potentially look for domestic companies that are able to tap into the growing middle class. >> okay. fascinating information. thank you so much andres. >> thank you for having me. >> and we have been speaking with andres garcia amaya of global market strategist at jpmorgan funds.
>> susie: a fresh face for avon: the cosmetics giant has chosen a former johnson and johnson executive as its new c.e.o. she's sherilyn mccoy. while mccoy has lots of experience running j&j's consumer unit. she lacks experience with avon's direct selling business model. the new c.e.o.'s top priorities: shoring up overseas operations and fending off takeover attempts. just last week, avon turned down a $10 billion offer from perfume maker coty. avon's makeover won't be easy, especially with former c.e.o. andrea jung still on board. she stepped down under pressure back in december, you probably remember, but she's staying on as executive chairman so she will look over the new c.e.o.'s shoulder. >> tom: the new c.e.o. will have a board seat, certainly but lots of challenges ahead for that new c.e.o.. and the share price today getting caught up in the overall selling pressure off by about 3%. also in the market focus, after posting their worst we canly losses just last week, the major stock indices really continue that trend
of lower prices here on the monday. the s&p 500 shed another 1% today. the index was hit by selling at the opening bell and stayed down throughout the session. the index continues turning back from a post-recession high hit one week ago tonight. with the recent selling, the index is up about 10% this year. weighing the most on the market was this trio of sectors, financials, industrials and materials all falling at least 1.5%. all ten of the major market stock sectors were lower today and that kind of broad-based sell-off hurt life insurance stocks and their portfolios. genworth, lincoln financial and principal financial were the leading losers in the financial sector. trading volume was a little lighter than average in all three. the biggest loser among dow industrial stocks was bank of america, falling 3.25%. it sits at a three and a half week low, but remains the best performing dow industrial stock so far this year.
a couple of health insurance companies specializing in medicaid health plans. molina and centene are losing the medicaid business they do with the state of ohio beginning next year. molina was hit the worst, losing more than a quarter of its value dropping 27%. citigroup estimates 20% of molina's revenue came from its ohio medicaid business. centene fell more than 15% even though the company predicted the loss in business will be, quote, immaterial, to its 2012 earnings. centene also said it plans to filing a formal protest over the decision. two other medicaid insurers also will lose their ohio business next year. well-care shares dropped 7.5%. ameri-group fell almost five. analysts think the impact on their businesses will be smaller. two companies gaining the ohio business saw less selling pressure, but still were down. aetna and united health fell at least 1.5% each. two other health industry stocks made headlines thanks to market
concerns about their products. medicalre device company st. jude fell over percent over concerns about a heart defibrillator product. a medical journal raised worries over insulated wires connecting defibrillators to hearts but s. jude wants the article retracted over what it claims are errors and biased analysis. drug developer inter-mune dropped 15.5%. an experimental respiratory drug has been delayed. finally, rare earth minerals. there has been a global rush to find and secure these elements used in everything from cell phones to autos to military high-tech gear. china produces 90% of the world's demand right now, but an american miner said it has more than it thought in a california mine. that news sent shares of molycorp up more than 4.5%. it now thinks its california mine has 36% more reserves than estimated earlier. molycorp is the only rare earth's producer in the western hemisphere.
and that's tonight's market focus. >> tom: while job gains last month were down, one industry that has continued hiring at a decent pace is restaurants. that brings us to tonight's word on the street: coffee. debra borchardt is a markets analyst at thestreet.com. deb, what's the connection between restaurant hiring and coffee? >> well, here's the thing. a lot of these places that are hiring are places that serve coffee. and the coffee stocks have been hot all last year. but they started to company done a little bit. and now i looked at a couple of things that brought me to the thinking that, you know, coffee stocks are going to company back. >> tom: and what are those things that make you think that dare we say t that they could perk higher?
>> well, again, when we looked at that report from jobs on friday, we drilled down and it did say that restaurants and specifically beverage serving restaurants were the ones that were hiring. and also coffee prices. when you look at a chart of coffee prices, coffee skyrocketed in 2 o-- 2010 and kept going up in 2011. just recently those prices started to fall. so you know these coffee companies and coffee sellers are going to go in, buy up that coffee that i cheap and lock in their prices. and that's going to filter down to the bottom line. >> absolutely. better margins. we have to talk about starbucks. the coffee business worldwide. share price just below an all-time high. >> right, it is the category killer. but here's the thing. it has started to pull back a little bit because i think a lot of those people in starbucks have taken a little bit off the table. and i look at starbucks who is like the apple of technology. it is the restaurant killer. and i think that a lot of people are drawn to starbucks because it's a
fairly safe bet, so that is the mild roast coffee. >> tom: your medium roast choice is caribou coffee. lesser well-known, small cap, fewer than a thousand shops. it is a smaller foot present. >> it is definitely a smaller footprint than starbucks but what i like about caribou is as you said it is not on everyone's radar and they really have a differential-- differentiation from starbucks that they are a little more socially conscious and that is also a big trend we are he ising right now. is people wanting to buy something and feel good is so you go to caribou, very healthy menu choices, very healthy food that they serve. not like the delicious treats that you see at starbucks. and they really are very socially responsible. >> tom: finally here, give us 20 seconds in sara lee, sle. not a traditional coffee stock. certainly well diversified foodmaker, though. >> well, sara lee, here is the risk in sara lee, is they're going to be breaking up the company into two places this summer. one of those companies is
going to be the coffee and tea beverage side and that is marilyn club coffee plus they sell coffee around the world. so you can get in now when no one is looking at it, at a low price and weight wait it out for the company to split. do you own any of these. can you own them. >> i don't. but i buy starbucks coffee. >> there you g she consumes it. deborah's article at the street.com. you can find it on our web site as well. a little bit of decalf tonight from debra borchardt with the street.com. >> susie: as we reported, u.s. investors were rattled by that big drop in hiring in march. that's something that has economist richard dekaser thinking about the end of the year and what's in store for the economy. he's deputy chief economist at parthenon group. >> just 120,000 jobs created in march-- just half of what was gained during each of the previous three months-- confirming what many economists suspected: employment gains were exaggerated over the winter months by freakishly benign weather and the underlying trend is one of unspectacular improvement.
this tepid reality underscores an important risk in our current economic policy. a federal debt ceiling agreement reached last august requires that large spending cuts and tax increases automatically kick in on january first. also increasing the payroll tax and further trimming unemployment benefits as current law now stipulates would make for an especially disruptive year-end transition from stimulus to austerity. in effect, we're confronting the mother of all new years resolutions. we'll binge like there's no tomorrow, until tomorrow, at which point we begin a starvation diet. everyone knows how this is foolish. a proper approach would taper off economic stimulus while laying plans for serious deficit reduction over time. besides, budget analysts all agree that our real debt problems are long-term in nature having to do with unfunded entitlement programs not short- term measures that temporarily prop up spending. reportedly, president obama and house speaker boehner were on the verge of such a deal last summer. a reprise-- this time closing the deal would make for the perfect holiday gift. i'm richard dekaser.
>> tom: and finally bond, yes, james bond, won't be ordering his signature vodka martini in the next installment of the popular spy movies.. instead, he'll be asking for a heineken. the dutch brewer has inked a product placement deal with the producers of the newest james bond movie "skyfall." it's due in theaters later this year. but before that, you'll start seeing bond star daniel craig in heineken commercials. the now with heineken are you more of a classic bond fan, connery with the shaken or stirred martini as the case may be. >> susie: i like them both, how about that, as long as they are driving that astin-martin, lie like them both. >> tom: that's "nightly business report" for monday, april 9. i'm tom hudson. goodnight, everyone and goodnight to you too susie. >> susie: good night, tom. i'm susie gharib goodnight, everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: